Renewed fears of an early default by Greece on its sovereign debt sent the euro, European stock markets and the already depressed value of bonds issued by other distressed peripheral eurozone members sliding yesterday.
The falls wiped out all of the gains made in European equity markets this year, with the FTSEurofirst 300 index sliding by 1 per cent. The euro also fell against the dollar and the yen, though the single currency later gained some of the ground back after Standard & Poor's changed its outlook on US Treasury bonds to "negative".
Meanwhile, formal talks between Portugal and a team of EU/IMF officials over its putative €80bn (£70bn) bailout began yesterday.
The immediate cause of the slide in the value of euro-denominated assets of all kinds was the election result in Finland, where the eurosceptic True Finns party made significant gains over the weekend. With a potent, populist mix of anti-EU, anti-immigration and anti-gay policies, the "True Finns," under their Millwall FC-supporting leader Timo Soini, more than quadrupled their share of the vote, putting the party firmly in line for a place in a future coalition government.
Finland is now the fourth Nordic country to witness an unexpected rise of the nationalist right. Coalition negotiations there will further hold up a Portuguese deal. Like the Netherlands and Germany, Finland is one of the few eurozone states whose public finances are robust, and the demands being made on its taxpayers are growing increasingly onerous. The True Finns party is hostile to further bailouts for the likes of Greece, Ireland and Portugal, and its progress adds to the political pressure in Germany, where electors are also growing tired of the calls on their wallets.
Off and on-the-record remarks by German ministers and sources in recent days suggest that Berlin is becoming resigned to a Greek default, and preparing for it as soon as the summer. On the other side, the Irish government has openly called for a "renegotiation" of the €87bn rescue package it agreed last November, but has so far only won minor concessions from its partners. Public opinion in both countries is tilting towards a default as the pain of successive rounds of austerity are taking their toll.
The Bank of Greece's governor, George Provopoulos, maintained that a restructuring of the country's giant public debt would have "disastrous consequences," and called on the government to step up the pace of its reform programme.
"It would have disastrous consequences for the access of the government and of Greek enterprises to international financial markets, as well as very negative effects on the assets of pension funds, banks and individuals holding Greek government securities," he said. Reuters has reported EU sources as saying that Greece has proposed an extension of the maturity of the debt it now owes to its euro partners, but it faced opposition from the European Commission, the ECB and some other European countries, such as France, with many worried that a Greek default would represent an extremely dangerous precedent.
Privately, IMF officials are thought to view the Greek debt, which is due to hit 160 per cent of GDP by 2013, as unsustainable, given the country's poor growth prospects and ability to service its obligations, and look upon some sort of restructuring as a certainty.
The Belgian Finance Minister, Didier Reynders, argued yesterday that Greece needs more time as there are political, social and economic limits to addressing such a large adjustment in such a limited period. Belgium and Spain are widely rated as being the next "dominoes" in any intensification of the long-running crisis.Reuse content